2013 (3) TMI 444 - HC - VAT and Sales Tax

Composition scheme under section 6 of the U.P. VAT Act - W.e.f. 1st of January, 2008 the U.P. Trade Tax Act has been repealed and simultaneously the U.P. VAT Act, 2008 was enacted - The petitioner did not apply for composition under the new Act i.e. the U.P. VAT Act, 2008 as after the 1st of January, 2008 no new contract was awarded and the existing contracts for electrical works were in progress - petitioner ultimately assessed to tax for the AY 2008-2009 under the U.P. VAT Act at the rate of 6 per cent on the goods brought in the State of U.P. exceeding the value more than 5 per cent of total receipts of the payment - assessee contested against tax levy as there was no such condition restricting the import of goods up to 5 per cent of the contract amount in U.P. VAT Tax Act - Held that - Admittedly, the petitioner has not opted to pay the composition fee under the new scheme framed under section 6 of the U.P. VAT Act for the subsequent years i.e. 2008-2009. The impugned assessment order is in respect to the Assessment Year 2008-2009 and it shall continue to be governed by the scheme, as it then existed, framed under section 7-D of the U.P. Trade Tax Act. The Assessing Authority, thus, could levy and demand the tax from the petitioner as per the terms of the scheme under which the petitioner had opted and not under the new scheme. The contention of the petitioner that under the old scheme the compounding fee was 2% which could not have been enhanced under the U.P. VAT Act to 4% was repelled. There the petitioners had applied under section 6 of the U.P. VAT Act which is no so in the case on hand. Thus the order passed by the respondent no.3 in so far as it demands the composition amount/fees at the rate of 6 per cent under the Composition Scheme of 2008 issued under the U.P. VAT Act, 2008 is hereby quashed in favour of assessee.

Summary

Issues:
1. Interpretation of composition scheme under the U.P. Trade Tax Act and U.P. VAT Act, 2008.
2. Validity of tax levy under the U.P. VAT Act for Assessment Year 2008-2009.
3. Applicability of conditions of the new scheme under U.P. VAT Act to existing contracts.
4. Comparison of composition schemes under the old and new Acts.
5. Judicial precedents related to composition fee enhancements.

Detailed Analysis:
1. The petitioner, an electrical contractor registered under the U.P. Trade Tax Act and later under the U.P. VAT Act, applied for composition of tax under Section 7-D of the Trade Tax Act for contracts during 2006-2007 and 2007-2008. The State Government had a composition scheme without restrictions on imported goods beyond a specified limit. The petitioner did not opt for composition under the U.P. VAT Act for subsequent years. The issue was the imposition of tax exceeding the composition amount due to imported goods, contrary to the old scheme's terms.

2. The Assessing Authority levied tax on goods exceeding 5% of the contract value under the U.P. VAT Act for the Assessment Year 2008-2009. The petitioner argued that the new scheme's conditions were not applicable as they had not opted for it. The court analyzed previous judgments emphasizing that the agreed composition fee binds both parties, and the department cannot unilaterally change terms. The court held that the petitioner was liable only under the old scheme, quashing the tax demand under the new scheme.

3. The court rejected the argument to apply the conditions of the new scheme retroactively to existing contracts, stating that the petitioner's liability should align with the scheme chosen during the relevant period. The court emphasized that the department's acceptance of the composition scheme binds both parties, preventing reassessment without fraud or concealment.

4. A comparison was made between the old and new composition schemes under the Trade Tax Act and U.P. VAT Act, respectively. The court clarified that the petitioner's liability should be determined based on the scheme chosen during the relevant assessment year, and the new scheme's conditions could not be imposed retrospectively.

5. The court distinguished a previous judgment related to composition fee enhancements under the U.P. VAT Act, noting that it did not apply to the present case. The court upheld the petitioner's argument that the old scheme's terms governed their liability for the Assessment Year 2008-2009, and the tax demand under the new scheme was quashed.

Overall, the court ruled in favor of the petitioner, holding that the tax demand under the U.P. VAT Act for the Assessment Year 2008-2009, based on imported goods exceeding the specified limit, was invalid as the petitioner had not opted for composition under the new scheme, and their liability was governed by the old scheme chosen during the relevant period.